As long-term stewards of our clients' assets, we aim to drive positive change on your behalf, through our thematic investment process, active engagement, and policy outreach. Our stewardship diaries offer an insight into this work, sharing the tangible impacts of your investments.
This time, we share our latest policy and engagement work on audit, ask what next after COP26, and outline why companies must submit a Climate Transition Action Plan for shareholder approval.
Investor Expectations: Net-zero audits
As part of a campaign led by Sarasin & Partners, a group of investors representing over $4.5 trillion has written to the UK Big Four Audit firms (PWC, Deloitte, KPMG and EY) calling on them to sound the alarm when company financial statements ignore the global transition to a 1.5°C temperature pathway.
The letters are the latest instalment in an engagement initiated by Sarasin & Partners in January 2019, and follow the recent Carbon Tracker report that provides overwhelming evidence of auditors failing to check whether and how global decarbonisation is being reflected in company accounts, even where the move away from fossil fuels poses an existential threat to the business.
Since 2019, we argue that the situation has become more pressing. Structural changes linked to both climate change itself and associated policy action are accelerating, making accounts (and their audits) based on ‘business as usual’ ever more questionable.
Also, audit standard setters and regulators have now underlined auditors’ responsibility to take material climate risks into account under existing standards and regulations.
Finally, investors are expressly asking for accounting disclosures that align with a 1.5°C pathway. This makes these considerations material and, thus, under the existing rules, a matter for directors to disclose, and auditors to audit. As helpfully reiterated in the latest IASB guidance, materiality is a function of what investors view as important to their decision-making, not what management perceives to be most important.
Beyond COP26: what must investors, companies and businesses do next?
November’s COP26 had a particular urgency, with many experts agreeing it represented the world’s last opportunity to take meaningful action towards meeting the Paris goals. What should investors make of COP26 and how best can they take action now the conference is over? What will the legacy of COP26 be? And most crucially, what should happen next?
At our inaugural Linkedin Live, Natasha Landell-Mills, Head of Stewardship, was joined by Heidi Hellmann, formerly Group Head of Strategy & Environment for Centrica, for a discussion of their impressions of how COP26 has progressed so far and outline what corporates, governments and investors must do next.
Natasha also appeared at Carbon Tracker’s panel at COP26, where she discussed the importance of Paris-aligned financial statements. Watch a video of the session here.
Say on Climate resolution
As part of an investor effort with the Local Authority Pension Fund Forum (LAPFF), and TCI Fund Management, we wrote to all UK-listed companies urging them to submit a Climate Transition Action Plan to each AGM for shareholder approval.
Companies need to make sure that their capital deployment lines up with their net-zero strategies – as part of this, companies must provide accounting disclosures aligned with a 2050 net-zero emissions pathway.
It is clear that filing resolutions at a limited number of companies of high carbon impact is no longer enough. All listed companies need to present a clear strategy for reducing their entire emissions footprint and make provision for their shareowners to review this annually by means of a resolution at the AGM.
You can keep up to date with our stewardship activities by following us on Twitter and Linkedin, and by visiting the stewardship section of our website.
If you are a private investor, you should not act or rely on this document but should contact your professional adviser.
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